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China Tightens Regulation On Foreign Online Game Operation

China Tightens Regulation On Foreign Online Game Operation

October 12, 2009 | By Chris Remo

October 12, 2009 | By Chris Remo
More: Console/PC

China's General Administration of Press and Publication and its National Copyright Administration have re-iterated and apparently strengthened their regulatory powers over online games operated out of China, requiring preapproval before any game can be launched, and completely forbidding any foreign investment in Chinese operators of online games.

Games must also be re-certified before they are updated or changed, or they risk decertification entirely, according to a Marbridge Daily report citing an official Chinese government statement.

Marbridge notes that the GAPP statement says that foreign companies "cannot control or participate in domestic game-operating businesses indirectly through another investment company, signed agreements or by supplying technical support. Foreign companies are neither allowed to covertly control or be involved in domestic gaming operations by means of joint networks for user registration, account supervision or game card systems."

These new rules are likely to make it significantly harder for overseas publishers to begin running new games in China -- without a joint partnership or agreement with a Chinese company, it may be difficult for newcomers to get a game running, but the new regulations prohibit such partnerships.

The announcements had an immediate impact on major Chinese game operator NetEase, which saw its stock price fall more than 5 percent. NetEase has operated Blizzard's World of Warcraft in China since June of this year, and just weeks ago managed to get the game back online after months of downtime.

NetEase had resumed World Of Warcraft's operation with the blessing of China's Ministry of Culture, but soon after, GAPP said it had been unaware of the launch -- which seems to have inflamed sometimes-strained relations between the two government bodies, as GAPP now seeks greater control of online games.

Speaking to the Wall St. Journal, Roth Capital Partner's Adam Krejcik said the rules are intended "to prevent overseas firms from participating in or effectively controlling online game operations," and that "siding with one government department is risky and could result in longer term problems for NetEase."

And although NetEase is the biggest story in this ongoing conflict, numerous online companies -- both domestic and foreign -- are likely to face future problems as a result.

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